Verdict on "The Public Option": Against

With all the conviction on each side of the question "should a universally available government-run health care payer compete with private payers," I had a hard time, for a long time, gleaning any actual evidence for either position. But after some reading, a good deal of listening, and even more thinking, I've concluded that the answer is No. I believe that such a system would be a half measure less desirable than the full-throated alternative on either side of it.

Adding Up the Numbers

Opponents of the public option often make vague conspiratorial statements like "We can't expect the government to play fair in any competition." But you don't have to imagine any such thing to conclude that "competition" will be pretty one-sided. Let's look at the numbers:

A lot of people's health care is paid for by the government today (60%, by one JAMA estimate -- quoted here and here):

• The elderly, who are eligible for Medicare (about 15% of the population)
• The poor, who are eligible for Medicaid (about 20%)
• Government employees, who receive health benefits from their employers (about 8%)
• Veterans, who are eligible for benefits through the VA (about 10%)
• Public school teachers (about 1%)
• ...and so on.

Clearly, these are overlapping groups, but we can nevertheless see that a substantial fraction of the population who have health insurance today will be enrolled in any public plan fairly immediately. Add to this fraction the 15-20% of people who currently have no insurance, but who will be mandated to enroll in some insurance plan and who would receive very substantial subsidies to join the public plan -- most of those people could be expected to join that plan.

By my reckoning, we've got over 50% of the population in the public plan semi-automatically -- we're not even counting any person or company that might "choose" the plan yet.

• Consider the "brand" power of any public plan. Everyone will know that the plan exists and that they are eligible for it. Everyone will know something about what the plan covers, because everyone will know people enrolled in the plan. This ubiquity will encourage further enrollment.
• Under measures in both Houses, families could be eligible for subsidized premium payments even up to income levels four times the poverty level -- almost $90,000. Will these subsidies be available for premiums paid to private plans as well?
• As a federally chartered organization, will the Federal insurer be able to operate nationally under a single set of rules? If so, that would represent a significant cost advantage over private insurers, who are regulated separately in each state.

Without even considering the differences between for-profit vs. not-for-profit business models, or any extraordinary government measures to push its own plan, it's not unreasonable to imagine a scenario in which 75% of the population is enrolled in the hypothetical public plan. The remaining 25% would be divided among all other insurers put together. That means that any public plan comes to market with more than ten times the economy of scale of any competitor.

We're talking about Walmart-level inequities of scale and more -- except that "Walmart" will be run by the government. (Tangent: I wonder what the correlation is between generalized rage against Walmart and generalized enthusiasm for publicly funded health care....) Mom & Pop, Inc. cannot compete on price with Walmart, regardless of how efficiently Mom and Pop run their business and regardless of whether they hope to turn a profit. They are outclassed, and so will be private health insurers.

If You Can't Beat 'Em...

When a business cannot compete on price, it typically moves up the value chain: it charges a premium price, so it must have a premium offering. But premium insurance plans are precisely those that are likely to be taxed in order to pay for the subsidies that will be required for the less-well-off. Closed, too, could be the secondary insurance market: In the UK, where everyone receives their primary insurance from the National Health Service, rather than through their employers, many employers offer secondary insurance as an employment benefit. But with primary insurance in the US still tied to employment, a sizable secondary insurance market is unlikely to develop: how many employers are likely to offer you two health insurance policies simultaneously as a standard benefit?

My conclusion: "competition" between public and private health care insurance plans is a fantasy, whether its backers acknowledge/hope/plot it or not. A public "option" will become a de facto single payer system -- but by maintaining the fiction that it is one of many competitors and is tied to employment, it will be unable to deliver all of the benefits of a true single-player plan. If we're to have a single-payer, a government-only-payer, health care system, we'd better start having that public debate. Let's stop pretending that we're talking about "If you like what you have, you can keep it, but there's this other option...."

Cost vs. Access

There are two goals of any health care payment reform: controlling costs and broadening access. These two goals may or may not have a single solution.

When contemplating single-payer health care, the implicit question is, "Can a government provide quality universal health care?" Clearly, it can. It does throughout the rest of the developed world. For all of the hand wringing in the United States over rationing and long wait times, Europeans are overwhelmingly happy with their health care, and they have health outcomes as good as or better than those of Americans. Even in the US, users of the government-run Medicare report greater satisfaction with their care than do users of private insurance plans.

I happen to have a philosophical problem with government-run health care (whether the government is delivering it or merely paying for it), just as I do with government-run airlines or grocery stores. I think government ought to concentrate more on governing and less on offering an assortment of commercially-available products and services. But government is clearly up to the task, and reasonable people can disagree about how much involvement it should have in the delivery of infrastructure services. Is health care really so different from schools or roads?

The second question, of cost control, is the thornier one, especially if we answer the first question with a single-payer system. We know what leads to lower prices in every other industry: price transparency, vigorous competition, and continuing innovation. With the possible exception of the first, these are not the qualities of commodity infrastructure. These are not qualities we expect from any other government service. We're not eager for the Next Greatest Thing in highways; they work well enough, much the same as they have since the Eisenhower administration. So how do we encourage competition? I've written about that before.

I believe that government can help us achieve both goals, but not by starting insurance companies itself.

• If there's to be competition among providers, I need to be able to move easily from one provider to another at any time. That means that "provider networks" are a bad thing. That means that medical records in closed formats are a bad thing. The government can help establish the right incentives.
• If I'm to exercise good judgement about the medical costs I incur, I need to be exposed to those costs myself -- I need to transition from a comprehensive insurance plan to a combination of a health savings account and a catastrophic insurance plan. Government can help with that too.
• Decreasing costs will naturally lead to increasing access. Government can take us further by imposing coverage mandates on certain individuals (not on employers -- that leads to the aforementioned, afore-dreaded vendor lock-in), just as it does for car insurance.

Now if only any part of my brilliant plan were actually on the table in Washington.